Questions to Ask A Prospective Financial Advisor

What to look for and what's not important

​If you are shopping for a financial advisor, you need a good checklist of questions to ask. What you are looking for is someone who handles clients like you – and who is financially wise.

​This list of questions to a prospective advisor will help you decide whether the person is the right fit for you:

4 Essential Questions:

How are you paid? Common methods include commissions, a flat fee, or a percentage of assets under management. Some advisors will offer choices and some have a single compensation method. Look for an advisor who can clearly state how she is compensated.

Are you a fiduciary? A fiduciary has a legal requirement to always act in your best interest with regard to all investments and services. Some advisors limit this to the required fiduciary standard for just retirement accounts while others use the fiduciary standards as a foundation of who they are and how they conduct business.

What licenses or industry designations do you have? No single designation is necessary but it is nice to see an advisor who places value on continuing education.

How do you typically meet with clients and how often do you meet with them? Select an advisor who meets the way you like to meet. An in-office meeting allows a personal connection that some people prefer. Virtual meetings are convenient when your schedule is tight or you are not near the advisor's office.

Other Important Questions to Ask:

What don't you do?

Some advisors are strictly asset managers. They run your portfolio and do no planning. Others are wealth managers and their mandate is broader: They plan the risk in your life. Within these categories are specialists in such areas as insurance and estate planning. You may hire an advisor to draw up an investment plan aimed at gathering enough assets to see you through retirement. But the advisor may know zilch about creating a trust to pass along wealth to your grandkids. So, you will need another expert for that.

Who is your typical client?

​Let’s say you are starting out and have a net worth of $50,000. It may not make sense for you to hire an advisor who typically handles multi-millionaires. You may want to find an advisor who focuses on your occupation. Say you are a doctor: An advisor whoknows about malpractice insurance and practice partnerships could be better for you than one who mainly deals with corporate executives. Or you may want an advisor specializing in your life stage. Perhaps you are widowed. Or a new parent. Or divorced.

What clients don't you want?

One advisor may not want anyone with under $100,000 to invest. Another wants only those people. Beyond asset size, goals and styles also are important.

What is a recent client success story?

​Showing clients how to unknot a problem, protect against calamity or enhance their holdings are key ways that advisors help out. If a prospective advisor can point to specific stories where he or she fostered a client’s success, it gives you comfort the advisor canaid you too.

What is the worst thing you have seen someone do financially?

To err is human. Sometimes, an advisor is called in to repair problems people have created for themselves. Sometimes, clients go against an advisor’s counsel and drive into a ditch. Clients, after all, are not required to follow professional financial advice. This question helps you gauge an advisor’s nose for trouble.

Believe it or not, there are advisors who told their clients to retreat into defensive positions prior to the 2008 market debacle, to lighten up on debt or to back out of heavy real estate exposure. On a smaller scale, a sharp advisor may warn clients to avoid dumb moves like keeping most of their assets in employer shares or chasing hot stock tips.

Bottom Line

Asking a prospective financial advisor these questions will help shape your decision as to whether you can work together. And remember, it is a partnership.

Most financial advisors will offer a free initial consultation. This consultation is your opportunity to interview the advisor and ask these or other questions. Make sure the advisor is someone you are comfortable talking to and who you feel is knowledgeable and intelligent.

You have many options in selecting a financial advisor. With so many choices available the advisor's service standards and or personality may be deciding factors. Take your time to select an advisor who is right for you and your financial goals.